by Derek de Gannes
The most recent federal budget included a proposal to increase the annual contribution limit to a tax free savings account (TFSA) to 10,000. With this in mind, retirement savings strategies will more likely than not include the TFSA however caution must be exercised when making contributions.
The Canada Revenue Agency (CRA) was asked if a spouse or common-law partner could make a cheque in the name of a financial institution to make a contribution to their spouse’s or common-law partner’s TFSA without disqualifying the account. The CRA confirmed that the TFSA contribution could only be made by its planholder.
This would be the case if a person received a donation from his or her spouse or common-law partner and used the funds to make a contribution to his or her own plan. However, if the facts of the transaction showed that a TFSA contribution was made directly by the planholder’s spouse or common-law partner, this would cause the planholder’s TFSA to be deregistered. In other words the TFSA would behave like just another savings account with no sheltering of income from tax.
No doubt the use of the TFSA in one’s retirement plan is sure to increase. Tread carefully when sourcing the funds to make the annual contribution to not run afoul of the rules to preserve the tax-free nature.